CHARLESTON, W.Va. – United States Attorney Booth Goodwin today announced a $4.675 million settlement with Massachusetts-based Calloway Laboratories, Inc. (Calloway Labs) related to false billings submitted to West Virginia Medicaid and nationwide to Medicare. Calloway Labs, headquartered in Woburn, Massachusetts, provides clinical laboratory services, including urine drug testing, for Medicare and West Virginia Medicaid. From March of 2009 through April of 2013, Calloway Labs routinely billed Medicare and West Virginia Medicaid using a code designated for pathology services in addition to the code for urine drug testing.

The investigation, conducted by the West Virginia Medicaid Fraud Control Unit (WV MFCU) and the United States Department of Health and Human Services, Office of the Inspector General (HHS-OIG), established that treating health care providers did not deem pathology services necessary and did not knowingly order such services. The investigation further established that Calloway Labs did not provide pathology services as billed. Rather, Calloway Labs performed a type of medical review with every urine drug screen. Medical review is not covered by Medicare or West Virginia Medicaid. Medicare and West Virginia Medicaid paid claims for the medical review because Calloway submitted them under the code for covered pathology services.

The settlement represents the largest-ever recovery in a health care fraud case by a United States Attorney’s Office in West Virginia.

“Drug treatment programs are a vital component of our ongoing battle against prescription drug abuse,” said U.S. Attorney Goodwin. “Treating providers rely largely on urine drug testing to determine whether patients are using illegal substances, and if so what substances, and whether patients are properly taking prescription medications as opposed to selling them on the street. The cost for such testing often falls upon federal health care programs like Medicare and Medicaid. The additional expense of unnecessary review, like that routinely performed by Calloway Labs, increases the burden on an already stressed system.”

“Medicare is the largest payer for clinical laboratory services and, therefore, is vulnerable to fraud, waste, and abuse,” said Gloria Jarmon, Deputy Inspector General for Audit Services. “In addressing that vulnerability, HHS-OIG uses a multidisciplinary approach, including data-mining, audits, and, as appropriate, enforcement actions, to protect the integrity of HHS programs and recover taxpayer dollars.”

“My office, HHS-OIG, and WV MFCU have worked aggressively and collaboratively with Calloway Labs to bring this matter to a successful resolution,” Goodwin said. “This settlement ensures that the federal tax dollars that fund Medicare and Medicaid are restored in full to the programs and the people they were intended to serve.”

Goodwin also reported that this single settlement is nearly enough to fund the work of his office for an entire year. “The settlement amount represents more than 80 percent of my office’s annual budget allocation. In other words, the recovery in this case nearly pays for the operation of my office for a year.”

In 2010, Calloway Labs and two of its top executives were indicted in Massachusetts on charges involving kickbacks and bribes to managers of group homes for recovering drug addicts. In 2012, Calloway Labs agreed to pay a $20 million penalty to resolve the charges against the corporation. Two of the company’s executives later pleaded guilty.

In the fall of 2012, Calloway Labs was acquired by new owners and new management was installed. The practices giving rise to the false claims in this matter were initiated under the former management. Upon learning of this investigation, Calloway Labs voluntarily suspended the problematic billing practices nationwide.

Goodwin remarked, “We have recovered the losses to the affected federal health care programs, covered the expense of investigation and the cost of future program compliance monitoring, and prompted the elimination of systematic problems leading to the depletion of federal health care dollars. I couldn’t be more pleased with the outcome, and I applaud the joint efforts of the agencies that brought us to this resolution.”